Question

Please select true or false and explain why

5. Since OPEC has more than two members, it is not well represented by Cournot-Nash model of strategic behavior.
6. A profit-maximizing monopolist will always set prices so that the markup over total costs is larger than one in absolute value.
7. A profit-maximizing monopolist operates in the inelastic portion of the demand curve only when it produces a luxury good.
8. If a producer had a mind-reading machine that allows it to know the willingness to pay of the consumers it could theoretically extract all consumer surplus.1.

Answer 1

5) false

OPEC has more than two members but they can still be represented by cournot model if they do not form cartel. Cournot model does not only include 2 firms, it includes more than two firms.

6) false

A profit maximising monopoly charge a price which is greater than marginal cost and thus will have markup but how much markup depends on the elasticity of demand and buyer's willingness to pay .

7) false

A monopolist always operates at the elastic portion of the demand curve so that if it decreases price, quantity demanded increases more, so that revenue can increase.

8) true

If the producer had a mind reading machine it will charge every consumer the maximum willingness to pay and extract all the consumers surplus. This practice is called first degree or perfect price discrimination.